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Pursuant to a congressional request, GAO reviewed the Japanese bank regulatory structure and its key participants, focusing on how: (1) the Japanese bank regulation and supervision is organized; (2) Japan's banking oversight structure functions, particularly with respect to bank licensing, regulation, and supervision; (3) Japanese banks are monitored by their supervisors; and (4) participants handle other financial system responsibilities.

GAO found that: (1) in Japan, two entities, the Ministry of Finance (MOF) and the Bank of Japan (BOJ), are responsible for ensuring the safety and soundness of the nation's banking system; (2) MOF, as a governmental agency, has the sole responsibility for licensing banking institutions and for developing and enforcing banking regulations; (3) in addition to its power to order business suspensions and to rescind a bank's license, MOF can seek the imposition of fines, and, in some cases, imprisonment as enforcement measures; (4) to fulfill its responsibility stipulated in the Bank of Japan Law, BOJ has contractual arrangements with 700 financial institutions, including all commercial banks, that allow it to examine these financial institutions and provide advice; (5) over the period 1990 to 1994, MOF and BOJ have examined approximately 500 banks annually, and, although MOF and BOJ do not regularly share information obtained during their separate on-site monitoring visits to the same banks, they do work together on a case-by-case basis to resolve crisis situations; (6) in connection with its responsibility to maintain the financial system's stability, BOJ is the lender of last resort and, as the central bank, BOJ can provide funds to banks in trouble or to the system as a whole if there is no alternative financial provider of liquidity to prevent a systemic crisis, and such liquidity is needed; (7) under the Bank of Japan Law, BOJ sets monetary policy and the interest rate at which it loans or discounts bills for its client banks; and (8) MOF and BOJ share responsibilities for such functions as failure resolution and representing Japan's interests in international forums.